Dollar store chains face customer pullback as higher prices impact shoppers

Dollar Tree has announced significant reductions to its full-year earnings and sales projections as its customers grapple with rising prices and are curbing their spending.

Following this news, shares of Dollar Tree plummeted over 12% before the market opened on Wednesday, marking a stark drop after reaching a 52-week low earlier in the week. This decline follows a similar fate for competing discount retailer Dollar General, which recently experienced its largest one-day stock drop due to disappointing quarterly results.

Dollar General has adjusted its expectations for the year, now forecasting adjusted earnings between $5.20 and $5.60 per share, a notable decrease from its previous guidance of $6.50 to $7 per share.

The company from Chesapeake, Virginia, has also lowered its annual sales forecast to a range of $30.6 billion to $30.9 billion, down from an earlier estimate of $31 billion to $32 billion.

Analysts surveyed by FactSet had predicted full-year earnings around $6.56 per share, coupled with projected revenue of $31.17 billion.

Despite efforts to attract customers with extremely low prices, Dollar Tree faces stiff competition from giants like Walmart and Target, which have reported similar pressures on their customer bases and have also begun to implement price cuts.

In its most recent quarter, Dollar Tree reported total revenue of $7.38 billion. When adjusted for certain items, the revenue stood at $7.37 billion, which does not meet the expectations set forth by analysts at Zacks Investment Research, who estimated $7.5 billion.

During the period ending August 3, Dollar Tree generated a profit of $132.4 million, or 62 cents per share. However, stripping out specific items, the adjusted earnings came in at 67 cents per share, significantly below Wall Street’s expectations of $1.03 per share.

In a statement, Chief Financial Officer Jeff Davis noted that the company’s disappointing earnings were, in part, due to economic pressures facing both middle- and higher-income customers. In contrast, Dollar General previously indicated that its biggest challenges stem from impacts on its lower-income clientele.

Despite the easing of inflation, many Americans are still dissatisfied with the higher costs for essentials like food, gas, and housing, especially in comparison to pre-pandemic pricing. As a result, consumers are tightening their budgets and cutting back on discretionary spending to allocate more funds towards necessary items.

As a consequence of these shifting consumer behaviors and economic circumstances, both Dollar Tree and Dollar General are facing new challenges in maintaining their market positions and satisfying their customer bases.